ICANN has just authorized the biggest shake-up of the domain name industry in a decade, lifting all the major cross-ownership restrictions on registrars and registries.

A surprise resolution passed on Friday at the ICANN board’s retreat could enable registries such as VeriSign to acquire registrars such as Go Daddy, and vice-versa.

The new rules will also allow registrars to apply for and run new top-level domains and, subject to additional conditions, may enable existing registries to eventually start selling direct to end users, potentially bypassing the registrar channel.

The implications of these changes could be enormous, and I expect they could be challenged by affected parties.

The board resolved that ICANN “will not restrict cross-ownership between registries and registrars”, subject to certain yet-to-be written Code of Conduct for preventing abuse.

These looser ownership restrictions will be included in the new TLD Applicant Guidebook. Existing registries will be able to transition to the new rules over time through contract changes.

ICANN will develop mechanisms for enforcing anti-abuse rules through contractual compliance programs, and will have the ability to refer cross-ownership deals to competition authorities.

These provisions may be enhanced by additional enforcement mechanisms such as the use of self-auditing requirements, and the use of graduated sanctions up to and including contractual termination and punitive damages.

The decision appears to have been made partly on the grounds that while almost all existing registry contracts include strict cross-ownership restrictions, it has never been a matter of formal policy.

A vertical integration working group which set out to create a bottom-up consensus policy earlier this year managed to find only deadlock.

In the absence of existing policy or new bottom-up policy recommendations, the Board saw no rationale for placing restrictions on cross-ownership. Any possible abuses can be better addressed by properly targeted mechanisms. Co-ownership rules are not an optimal technique in this area.

Most members of the VI working group broadly favored some level of cross-ownership restriction, such as a 15% cap, while a smaller number favored the “free trade” position that ICANN seems to have gone for.

The companies campaigning hardest against cross-ownership being permitted were arguably Afilias and Go Daddy, though the likes of NeuStar and VeriSign also favored some restrictions.

Opponents of integrating registry and registrar functions argued that giving registrars access to registry data would harm consumers; others countered that this was best addressed through compliance programs rather than ownership caps.

The big winners from this announcement are the start-up new TLD registries, which will not be forced to work exclusively within the existing registrar channel in order to sell their domains.

I understand that now they could consider buying a registrar / “vertically-integrate” — but would they want to? And wouldn’t other registrars cry foul about the potential for Verisign to abuse their power and treat the in-house registrar preferentially?

On the other side of the coin, how could this decision hurt Verisign? What are the actual implications for the registry business– it’s not like Godaddy or some other registrar would become a “competing” registry, since the nature of the work requires you to be the exclusive control of the root name space… or am I missing something?

On your first question, I think it’s likely that existing registries — especially VeriSign — would have more stringent restrictions than other vertically integrated registries. I don’t think the details have been fully worked out yet.

On your second question, Go Daddy, for example, could become a competing registry, but only for its own TLD. Not .com, obviously. Each TLD is managed exclusively by one registry.

[…] (registries that own/operate registrars) has been a long and ongoing issue at ICANN, but in late 2010 the board decided that registries are indeed allowed to own registrars. One of the other applicants, Demand Media, recently increased the reach of their retail channel […]

[…] (registries that own/operate registrars) has been a long and ongoing issue at ICANN, but in late 2010 the board decided that registries are indeed allowed to own registrars. One of the other applicants, Demand Media, recently increased the reach of their retail channel […]

[…] (registries that own/operate registrars) has been a long and ongoing issue at ICANN, but in late 2010 the board decided that registries are indeed allowed to own registrars. One of the other applicants, Demand Media, recently increased the reach of their retail channel […]